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Top Democratic lawmakers have urged Treasury Secretary Steven Mnuchin to quickly provide American airlines with direct payroll assistance and to avoid insisting on overly restrictive terms that could deter companies from taking the money, the New York Times reported. Major airlines began submitting their applications for government support to the Treasury Department on Friday but there is growing concern within the industry that Mnuchin will demand strict terms to ensure that taxpayers are compensated, such as large equity stakes in the companies. Some of the airlines, which have seen demand plummet as the coronavirus pandemic has stalled global travel, are wary of giving the government too much control over their businesses and accepting strict conditions tied to the aid. Democrats fear that if Mnuchin drives too hard of a bargain, airlines will balk and lay off more workers. In a letter that was sent to Mnuchin on Sunday, Sen. Chuck Schumer of New York, the Democratic leader, and Speaker Nancy Pelosi (D-Calif.) warned that it would not be in the public interest if the airlines were to choose to declare bankruptcy.

International seat capacity has dropped by almost 80 percent from a year ago and half the world’s airplanes are in storage, new data shows, suggesting the aviation industry may take years to recover from the coronavirus pandemic, Reuters reported. Carriers including United Airlines Holdings Inc. and Air New Zealand Ltd. have warned they are likely to emerge from the crisis smaller, and there are fears others may not survive. “It is likely that when we get across to the other side of the pandemic, things won’t return to the vibrant market conditions we had at the start of the year,” said Olivier Ponti, vice president at data firm ForwardKeys. “It’s also possible that a number of airlines will have gone bust and uneconomic discounts will be necessary to attract demand back,” he said. ForwardKeys said that the number of international airline seats had fallen to 10 million in the week of March 30 to April 5, down from 44.2 million a year ago. Data firm OAG said that several years of industry growth had been lost and that it could take until 2022 or 2023 before the volume of fliers returns to the levels that had been expected for 2020.

Airlines will be required to propose up-front how the federal government could retain financial stakes in their companies in exchange for a share of $61 billion in coronavirus aid designated for the industry, according to guidelines released by the Treasury Department, Bloomberg News reported. The assistance is aimed at helping U.S. carriers stay afloat and continue to pay workers, as companies struggle with a near 90 percent drop in passenger traffic because of the widening pandemic. Instructions for applying for aid were posted by the Treasury yesterday, just days after President Donald Trump signed the $2.2 trillion stimulus package into law. The legislation negotiated by Treasury Secretary Steven Mnuchin with top U.S. lawmakers includes as much as $32 billion in payments for airlines to keep employees on their payrolls. Under the guidelines, recipients must refrain from making any furloughs or layoffs before Sept. 30 of this year. The measure also offers $29 billion in loans to carriers to help fund their operations. The guidelines say that applicants should submit details of existing debt and credit lines with outstanding balances, scheduled debt service for three years and employment levels.

President Donald J. Trump on Friday afternoon signed the “Coronavirus Aid, Relief and Economic Security Act” (CARES Act) into law with provisions to provide financially distressed consumers and small businesses greater access to bankruptcy relief. The legislative package, which quickly passed the House of Representatives on a voice vote earlier on Friday and 96-0 in the Senate on Wednesday, provides a $2 trillion economic stimulus for U.S. industries and citizens faced with the challenges of the COVID-19 coronavirus.

“ABI commends Congress and the President for their prompt action on this stimulus package to provide needed financial relief due to the COVID-19 coronavirus pandemic,” said ABI Executive Director Amy Quackenboss. “Consumers and small businesses will have greater access to the financial fresh start of bankruptcy thanks to this important legislation.”

Key bankruptcy provisions within the CARES Act include:

• Amending the Small Business Reorganization Act of 2019 (SBRA) to increase the eligibility threshold for businesses filing under new subchapter V of chapter 11 of the U.S. Bankruptcy Code from $2,725,625 of debt to $7,500,000. The eligibility threshold will return to $2,725,625 after one year. The increased debt limit for struggling small businesses to access subchapter V reflects recommendations of ABI’s Commission to Study the Reform of Chapter 11.
• Amending the definition of “income” in the Bankruptcy Code for chapters 7 and 13 to exclude coronavirus-related payments from the federal government from being treated as “income” for purposes of filing bankruptcy.
• Clarifying that the calculation of disposable income for purposes of confirming a chapter 13 plan shall not include coronavirus-related payments.
• Explicitly permitting individuals and families currently in chapter 13 to seek payment plan modifications if they are experiencing a material financial hardship due to the coronavirus pandemic, including extending their payments for up to seven years after their initial plan payment was due.

The bankruptcy provisions of the CARES Act listed above sunset within a year.

Additionally, the law provides temporary relief for federal student loan borrowers by requiring the Secretary of Education to defer student loan payments, principal, and interest for 6 months, through September 30, 2020, without penalty to the borrower for all federally owned loans. This provides relief for over 95 percent of student loan borrowers. 

Click here for ABI's full press release.

Treasury Secretary Steven Mnuchin indicated that the U.S. government would take stakes in airlines in exchange for billions of dollars in direct grants to the companies as part of a $2 trillion economic rescue package, the Wall Street Journal reported. He detailed his plans during last-minute negotiations when the aid to airlines emerged as a major legislative sticking point. Republicans had rejected providing cash grants to airlines, and an earlier version of the legislation would have provided $50 billion in loans and loan guarantees to passenger airlines and $8 billion to cargo airlines — but no direct aid. Mnuchin has previously signaled such a move was on the table, saying last week that equity stakes could be part of the eventual aid package. While it wasn’t clear what form the investment would take, one option is a warrant that converts into equity. A warrant gives the buyer the option to buy shares at a certain price. Airlines for America, the industry group for U.S. carriers, said the direct payroll grants would help airlines continue paying workers. “We remain hopeful that the federal government will expeditiously release these funds with as few restrictions as possible to ensure airlines are able to utilize these provisions and meet our payroll,” the group said. Its statement didn’t address the issue of the government taking stakes in companies.

The Senate included key provisions in the “Coronavirus Aid, Relief and Economic Security Act” (CARES Act) to provide financially distressed consumers and small businesses greater access to bankruptcy relief. The legislative package, which yesterday passed the Senate 96-0, provides a $2 trillion economic stimulus for U.S. industries and citizens faced with the challenges of the COVID-19 coronavirus. The legislation now goes to the House, where it is anticipated to be considered on Friday and signed shortly after by President Trump.

“Consumers and small businesses in dire need of financial relief due to the COVID-19 coronavirus pandemic will have greater access to the financial fresh start of bankruptcy thanks to this important legislation,” said ABI Executive Director Amy Quackenboss. “ABI commends the Senate’s expedited work, and we look forward to swift enactment of this important bipartisan legislation.”

Key bankruptcy provisions within Sect. 1113 of the CARES Act include:

• Amending the Small Business Reorganization Act of 2019 (SBRA) to increase the eligibility threshold for businesses filing under new subchapter V of chapter 11 of the U.S. Bankruptcy Code from $2,725,625 of debt to $7,500,000. The eligibility threshold will return to $2,725,625 after one year. The increased debt limit for struggling small businesses to access subchapter V reflects recommendations of ABI’s Commission to Study the Reform of Chapter 11.
• Amending the definition of “income” in the Bankruptcy Code for chapters 7 and 13 to exclude coronavirus-related payments from the federal government from being treated as “income” for purposes of filing bankruptcy.
• Clarifying that the calculation of disposable income for purposes of confirming a chapter 13 plan shall not include coronavirus-related payments.
• Explicitly permitting individuals and families currently in chapter 13 to seek payment plan modifications if they are experiencing a material financial hardship due to the coronavirus pandemic, including extending their payments for up to seven years after their initial plan payment was due.

The bankruptcy provisions of the CARES Act listed above sunset within a year of the legislation being enacted.

Additionally, Sect. 3513 of the legislative package provides temporary relief for federal student loan borrowers by requiring the Secretary of Education to defer student loan payments, principal, and interest for 6 months, through September 30, 2020, without penalty to the borrower for all federally owned loans. This provides relief for over 95 percent of student loan borrowers.

“ABI members are ready to utilize these tools to help consumers and small businesses struggling with overwhelming debts due to the economic fallout of the pandemic,” Quackenboss said.

SBRA became effective on Feb. 19, adding a new section to chapter 11, subchapter V, to provide a better path for small businesses to successfully restructure, reduce liquidations, save jobs and increase recoveries to creditors. Subchapter V of the new law is based on the recommendations contained in the Final Report of ABI’s Commission to Study the Reform of Chapter 11, a project that was funded by ABI’s Anthony H.N. Schnelling Endowment Fund. The provision of the CARES Act to temporarily increase to the debt limit set forth in SBRA aligns closely with the recommendation of ABI’s Chapter 11 Reform Commission to permanently increase the debt eligibility limit to $10 million. For more information and resources on SBRA, please visit www.abi.org/sbra.

Chapter 7 bankruptcy relief, available to consumers and business debtors, involves the sale of a debtor’s nonexempt assets by a chapter 7 trustee, who uses the proceeds of the sales to pay creditors in accordance with the rules outlined in the Bankruptcy Code.

Chapter 13 bankruptcy relief, available only to consumer debtors, enables individuals with regular income to develop a plan to repay all or part of their debts. Under this chapter, debtors propose a repayment plan to make installments to creditors over three to five years.

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ABI is the largest multi-disciplinary, nonpartisan organization dedicated to research and education on matters related to insolvency. ABI was founded in 1982 to provide Congress and the public with unbiased analysis of bankruptcy issues. The ABI membership includes nearly 11,000 attorneys, accountants, bankers, judges, professors, lenders, turnaround specialists and other bankruptcy professionals, providing a forum for the exchange of ideas and information. For additional information on ABI, visit www.abiworld.org.

U.S. airlines probably will avoid applying for some $25 billion in loans under a federal aid package designed to help them survive the collapse in travel from the new coronavirus, according to JPMorgan Chase & Co., Bloomberg News reported. But the carriers will tap a similar amount in cash assistance for payrolls that should eliminate the risk of near-term bankruptcies, JPMorgan analyst Jamie Baker said in a report yesterday. A stipulation in the draft proposal that requires loan applicants to show that they have no other sources of capital “will preclude any airline in our coverage universe from applying, at least for the time being,” Baker said. While other funds are expected to grow more costly and harder to find, the four largest U.S. carriers secured billions of dollars in loans over the past few weeks. American Airlines Group Inc. borrowed $1 billion in term loans yesterday under an existing credit facility.

Major U.S. airlines are drafting plans for a potential voluntary shutdown of virtually all passenger flights across the U.S., according to industry and federal officials, as government agencies also consider ordering such a move and the nation’s air-traffic control system continues to be ravaged by the coronavirus contagion, the Wall Street Journal reported. No final decisions have been made by the carriers or the White House, these officials said. As airlines struggle to keep aircraft flying with minimal passengers, various options are under consideration, these people said. But amid the quickly spreading pandemic and mandatory stay-at-home orders covering some 80 million U.S. residents, airline executives, pilot-union leaders and federal transportation officials said they increasingly view as inevitable further sharp reductions from already-decimated schedules in passenger flights. U.S. airlines have already eliminated the vast majority of international flying and have announced plans to cut back domestic flying by as much as 40 percent. Travelers are staying home at even greater rates. The Transportation Security Administration reported that passenger flow at its checkpoints was down more than 80 percent Sunday from the same day a year earlier. On Monday, thousands of flights were canceled, in some cases because planes weren’t full enough to justify the trip, with passengers numbering in the single digits.